Thanks to its nuclear agreement with the U.S., Iran is reaping financial benefits from unfrozen assets.
Was the Iran nuclear deal really all about nuclear weapons, from Tehran’s point of view? Or did the mullahs play the world for suckers as a road to easy wealth?
On Monday, Iran’s government announced that it had gained access to $100 billion in previously frozen assets, freed up under the terms of the Joint Comprehensive Plan of Action, the controversial nuclear agreement adopted in October and implemented last month. Tehran is being courted by Airbus and French automaker Peugeot-Citröen to help spend this windfall, for potential deals unveiled last week totaling $30 billion. Iran has also rejoined the SWIFT international banking network to ease the transfer of foreign funds into the Islamic Republic.
The unfrozen assets, mainly held in Asian banks, for the most part represent credits Iran had built up for prior oil and natural gas purchases under the now-defunct sanctions regime. Part of it may be spent on buying European cars and aircraft, and part may go to building Iran’s infrastructure, or schools, hospitals or homeless shelters. But it will also be spent on terrorism. Iran’s defense minister has said Iran will not stop supporting terror groups like Hezbollah, Hamas and Islamic Jihad. Even Secretary of State John Kerry backtracked on earlier statements and admitted that sanctions relief would energize Iran’s terror networks.
The only good news is that the current oil glut means that Iran will not be able to reap huge profits from increased oil sales. When negotiators reached a deal with Iran last summer, oil was trading at around $57 a barrel. Now it is down to $27, and falling. This is bad news for all the oil-producing countries, and Iran in particular. At current rates of production – approximately 2.7 million barrels per day – Iran needs oil to be up around $131 a barrel to balance its budget. As things stand, the Islamic Republic will face an 80 percent budget shortfall. As well, the overall slump in energy markets will inhibit foreign companies from investing in Iran, given their already low profit margins and the unlikelihood of a quick – or any – return on investment. Tehran has announced that it will attempt to raise revenue by increasing oil output, but this will simply maintain downward pressure on prices, defeating the purpose.
This puts another perspective on Iran’s massive financial windfall. The unfrozen assets, which may eventually total close to $150 billion, represent about five and a half years of oil revenue. Thus while other, more pro-western Sunni Arab oil producers in the region like Saudi Arabia and Kuwait face crushing austerity, Iran can float above it all, buoyed by the impact of the nuclear deal.
But at least the deal will prevent Iran from developing a nuclear weapon, right? Well, no. The agreement’s framework is weak. Its inspection and verification provisions are fatally malformed. It relies mainly on Iran voluntarily agreeing to ramp back its weapons research, which it has never admitted doing in the first place. And it assumes that Iran will not cheat on the deal, which is a naive notion. This was illustrated in January, when the Obama administration was forced to seek new sanctions after Iran conducted missile tests in open violation of UN limits on its illicit missile program. So the deal’s “trust but don’t verify” approach is doomed to fail.
Of course, the next U.S. president may abrogate the agreement and try to “snap back” sanctions. But that would be closing the barn door after the